The CBS-Redstone feud and the perils of going public

Tue, May 15, 2018

By Barbara Spector

Taking your family company public gives it access to plentiful capital it couldn’t have raised otherwise, allowing it to grow into a stronger competitor and maybe even a powerhouse in its market. Going public enables you to grant equity to key executives, a compensation strategy that can help you recruit the best and the brightest. An IPO raises the profile of your family and business — a good thing if you like publicity — and, if things work out, can make you rich.

But if you want to make a move your board opposes, the directors might try to reduce your power. That’s what’s happening to Shari Redstone, whose family holding company, National Amusements Inc., controls CBS Corp. Shari is the daughter of National Amusements’ majority owner, Sumner Redstone, 94, who reportedly suffers from dementia and uses an assistive device to speak.

On May 14, CBS and a special committee of independent directors filed suit in Delaware’s Chancery Court against Shari and Sumner Redstone and National Amusements, citing a provision in the mass-media company’s corporate charter that would allow it to issue a dividend of voting shares to all stockholders. That would dilute the Redstones’ voting power from about 80% to about 17%.

(Updates: Shari changed the CBS bylaws to require a supermajority vote to approve the proposal. On May 17, a judge denied CBS's request for a temporary restraining order against her, allowing National Amusements to keep control of the company. On the same day, the CBS board voted to approve the special dividend to dilute the Redstones' control, which won't take effect without Delaware Chancery Court approval. CBS filed an amended complaint that said Shari "has made clear that she poses a substantial threat to the best interests and welfare of the company." Shari responded by filing a suit on May 29, asking the court to rule on whether the board's May 17 vote to dilute her family's voting share was valid. A New York Times report noted that, according to her suit, the board meeting occurred after Moonves "apparently" threatened to resign if the Redstones' voting stake was not reduced.)

For two years, Shari has been trying to force a merger between CBS and Viacom Inc., a publicly traded media company also 80% controlled by National Amusements. Les Moonves, CEO of CBS, opposes the merger. The special committee of the CBS board determined a merger wouldn’t be in the best interest of all the shareholders. Another area of conflict is the role Viacom CEO Bob Bakish would play in the merged company. (Shari wants Bakish to be a part of the leadership team; Moonves wants autonomy.)

CBS is considered the stronger company. Viacom, which owns the Paramount film studio and cable TV networks (including BET, MTV and Nickelodeon), has seen box-office revenue decline and ratings for its TV shows fall. A Vanity Fair report in April noted that the merger talks have caused CBS’s share price to drop — which, of course, means the Redstones are taking a hit along with all other shareholders.

In a statement responding to CBS’s legal action, National Amusements said in part, “This precipitous lawsuit, and the efforts of CBS management and its ‘independent’ directors to wrest voting control from NAI, are outrageous. We intend to defend our position vigorously and look forward to presenting our arguments in court.”

National Amusements took control of Viacom in 1987. Sumner acquired CBS in 2000, and the two companies operated under the same umbrella until 2006, when Sumner separated them, a move Shari reportedly never agreed with.

The Vanity Fair report said Shari’s push to recombine the two companies seems to stem from a desire to settle a score with her father, who didn’t want her to play a role in either company and has tried to buy out her stake in National Amusements. Anonymous Hollywood gossip blogs have speculated that the motivation behind the merger might involve trouble brewing at Nickelodeon; this theory has not been substantiated.

Sumner has feuded with Shari and other family members, and these feuds have become public. In the mid- to late 2000s, according to media reports, the father and daughter communicated only by fax. In 2016, an ex-girlfriend, Manuela Herzer, sued to challenge Sumner’s mental competency when he evicted her from his mansion and revoked her authority over his healthcare decisions. (The suit was dismissed.) Later that year, Sumner sued Herzer and another former girlfriend, Sydney Holland, accusing them of elder financial abuse, fraud and not acting in his best interest. A power struggle ensued, and Shari was left in control over Viacom’s management team after Philippe Dauman was ousted as its CEO.

Back in 1972, Sumner bought out a stake in National Amusements held by his brother, Edward, after a conflict between the two. In 2006, Sumner was sued by his son, Brent, and bought out Brent’s stake as part of a settlement agreement. Also that year, Edward’s son Michael sued Sumner, accusing him of self-dealing.

No family business should ever be used as a weapon for one family faction to wield against another. When shares of the company are owned by the public, the wheeling and dealing will make its way into the press — along with stories the family might prefer to keep under wraps.